Newspaper article International Herald Tribune

Europe Fails Again to Quell the Crisis

Newspaper article International Herald Tribune

Europe Fails Again to Quell the Crisis

Article excerpt

If Europe's leaders don't figure out how to help Greece and other weakened nations to grow as they reduce their debt, the consequences could be disastrous.

They blew it, again. With Greece in meltdown, raising fears of cascading bank insolvencies and deepening recession, Europe's leaders failed again this week to agree on the ambitious initiatives needed to quell the crisis.

For a few days before their Wednesday dinner meeting, it sounded as if Chancellor Angela Merkel of Germany might be ready to change her all-austerity-all-the-time tune. France's new president, Francois Hollande, had campaigned and won on a pro-growth agenda, and Ms. Merkel was suddenly suggesting that some stimulus for Greece and others to spur growth might be possible.

But, on Wednesday, she was again insisting on the same draconian budget cuts and the same unreachable targets as the price of aid to Greece and other indebted euro-zone nations.

By this point, there should be no debate: Austerity has been a failure, shrinking economies and making it ever harder for indebted countries to repay their debts.

The political costs are also rising. In parliamentary elections earlier this month, Greece's voters rejected candidates from the two major political parties that had agreed to a German-dictated "rescue" package, and the country has been unable to form a government since. In that vote, the far-right party, Golden Dawn, whose xenophobic members perform Nazi salutes, did frighteningly well -- a warning that no responsible political leader in Europe can afford to ignore.

Meanwhile, the unthinkable becomes increasingly imaginable: Greece fails to meet the conditions of its bailout and drops out, or is forced out of the euro zone. The financial chaos could quickly spread, spooking investors and destabilizing the banks and economies of other struggling European nations, with knock-on effects for the global financial system and the world economy.

We take no comfort in recent reports that European finance officials have been preparing contingency plans for Greece's exit from the euro, or in the proclamations of Germany's central bank that the effects of a Greek exit would be manageable. …

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